The Pension Fund Regulatory and Development Authority (PFRDA) is working on a dedicated fund-of-funds model under the National Pension System (NPS) to enable pension assets to be deployed into select Alternative Investment Funds (AIFs). The plan was outlined by PFRDA Chairperson S. Ramann during the IVCA DII & Exits 2025 event.
Proposed Structure for AIF Allocation
According to the regulator, the investment framework involves classifying all alternative investment instruments under equity or debt categories. The structure aligns with recent updates from SEBI, which now categorises Real Estate Investment Trusts (REITs) as equity.
The regulator stated that work over recent years has focused on:
- Refining asset classification under the NPS
- Strengthening governance mechanisms
- Developing a centralised, transparent platform for AIF allocations
Once introduced, the fund-of-funds format is expected to standardise investment processes for pension fund managers participating in alternate asset classes.
Statements from the Regulator
During the event, Ramann noted that pension capital is long-term in nature and can be aligned with alternate investment structures. He also referenced the need for frameworks suitable for broader private market participation by domestic pension pools.
He added that certain investment vehicles—such as AIFs with longer tenures or perpetual structures—may offer alignment with retirement-linked investment horizons.
Summary:
PFRDA is creating a framework under the National Pension System that will use a fund-of-funds structure to invest in select AIFs. The regulator has classified alternate assets into equity and debt categories and is developing a centralised investment mechanism to streamline participation by NPS fund managers. Statements from PFRDA leadership highlight ongoing efforts to align long-term pension capital with regulated alternative investment structures.
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